Jaitley enlightened that a crucial aspect of GST is the Input Tax Credit system.

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Finance Minister Arun Jaitley provided a step by step clarification on sanitary pads being levied GST, while speaking at an event on Thursday. Jaitley went on to say that the debate behind charging GST on this basic necessity is back by half knowledge and ill-informed people.

Sanitary napkins are currently in the 12 percent slab of GST. The need to charge GST is basically to protect the Indian manufacturers from the foreign producers of the product. The Finance minister was quizzed some burning issues around GST, one of them being why such a basic sanitation product could fall under such high tax bracket, during the HTLS.

Jaitley enlightened that a crucial aspect of GST is the Input Tax Credit system. Simply put, the total tax, a manufacturer has to pay to the government over a product that they sell is set off by the tax that has already been paid on the raw materials for that product. It is the net of these taxes that are actually levied upon the customers.

Explaining the case of sanitary pads, Jaitley said the tax charged is 12 percent of the cost that is set by the manufacturer. When this manufacturer purchases the raw material for the product, he pays GST to them. Since some of the raw material fall in the 18 percent tax bracket, the manufacturer even ends up paying 18 percent GST to such raw material providers.

So what the manufacturer ultimately ends up paying is the final tax on the price of his product, lessened by the taxes he already paid to the manufacturers. This explains the Input Credit System from the point of a manufacturer.

“Prior to the implementation of GST, there were several hidden taxes which led to sanitary pads to have an effective tax rate of 13 percent over the price. So that is already reduced to 12 percent by bringing it under the GST,” said Arun Jaitley.

He further explained, “Add to it the input tax credit to the manufacturer, and it then gets reduced in the range of 3-4 percent effectively that has to be paid to the government, significantly cutting down manufacturing cost for the manufacturer. Since the manufacturing costs are cut, the benefit can even be passed on to the customer in the form of lower base price.”

Highlighting a very important aspect, Jaitley spoke about how this reform protects Indian manufacturers from Chinese counterpart.

“Apart from the input tax credit boosting the indigenous manufacturers, it also protects them from Chinese imports. This is because the Chinese imports have a lower base price than Indian products. Removing the GST completely from the sanitary pads would result in loss of input credit to Indian manufacturers and would drive up manufacturing costs even further. Thus, the GST keeps Indian goods competitive,” said Arun Jaitley.